Hudson Highland Group Reports 2006 First Quarter Financial Results

    NEW YORK, May 3 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc.
 (Nasdaq:   HHGP), one of the world's leading providers of specialized
 professional staffing, retained executive search and talent management
 solutions, today announced financial results for the first quarter ended
 March 31, 2006.
     2006 First Quarter Summary
 
      * Revenue of $344.7 million, a decrease of 2.3 percent from $352.9
        million for the first quarter of 2005
 
      * Gross margin of $128.1 million, or 37.2 percent of revenue, down 0.1
        percent from $128.2 million, or 36.3 percent of revenue, for the same
        year-ago period
 
      * EBITDA loss of $0.1 million, or 0.0 percent of revenue, down from an
        EBITDA profit of $1.8 million, or 0.5 percent of revenue, for the first
        quarter of 2005
 
      * Net loss of $5.9 million, or $0.24 per basic and diluted share,
        compared with a net loss of $5.2 million, or $0.25 per basic and
        diluted share for the same period last year
     "First quarter consolidated results were impacted by a disappointing
 performance in Hudson Americas," said Jon Chait, chairman and chief
 executive officer of Hudson Highland Group. "However, Hudson Europe
 continued to make good progress, Hudson Asia Pacific stabilized on the top
 line and Highland Partners reported stronger profitability."
     "Several action steps are already underway to address the issues in
 Hudson Americas," said Mary Jane Raymond, executive vice president and
 chief financial officer. "We have made key personnel changes as
 appropriate, and we are moving to enhance our productivity in the region.
 As these moves take effect, we expect to deliver good progress toward our
 full-year targets."
     Guidance
     Given the current economic environment, the company expects 2006 EBITDA
 as a percent of revenue to be 2.5 to 3.5 percent, constant currency revenue
 growth of 1 to 5 percent and constant currency gross margin growth of 5 to
 10 percent. This guidance is based on expectations of constant currency
 revenue growth of 5 to 10 percent for Hudson Americas, 0 to 5 percent for
 Hudson Europe and Highland Partners, and -5 to 5 percent in Hudson Asia
 Pacific. This guidance does not reflect the impact of any acquisitions or
 divestitures that the company may consider in the future.
     Beginning in the first quarter of 2006, the company recorded
 compensation expense related to outstanding employee stock options in
 accordance with FAS 123R. Based on current information, the company
 anticipates this expense to be $5.3 million for 2006. Corresponding costs
 in 2005 were $4.5 million. Note that the company's 2005 financial
 statements have been adjusted for the adoption of SFAS 123R using the
 modified retrospective method.
     Conference Call / Webcast
     Hudson Highland Group will conduct a conference call Thursday, May 4,
 2006 at 9:00 AM ET to discuss this announcement. Investors wishing to
 participate can join the conference call by dialing 1-800-374-1532 followed
 by the participant passcode 7841127 at 8:50 AM ET. For those outside the
 United States, please call in on 1-706-634-5594 followed by the participant
 passcode 7841127. Hudson Highland Group's quarterly conference call can
 also be accessed online through Yahoo! Finance at http://www.yahoo.com and
 the investor information section of the company's website at
 http://www.hhgroup.com.
     Additional Information
     Please find additional information about the company's quarterly
 results in our shareholder letter in the investor information section of
 the company's website at http://www.hhgroup.com.
     Hudson Highland Group
     Hudson Highland Group is one of the world's leading professional
 staffing, retained executive search and talent management solution
 providers. We help our clients achieve greater organizational performance
 by attracting, selecting and developing the best and brightest people for
 their businesses. Our approximately 3,800 employees in more than 20
 countries are dedicated to providing unparalleled service and value to our
 clients. More information about Hudson Highland Group is available at
 http://www.hhgroup.com.
     Safe Harbor Statement
     This press release contains statements that the company believes to be
 "forward-looking statements" within the meaning of the Private Securities
 Litigation Reform Act of 1995. All statements other than statements of
 historical fact included in this press release, including those under the
 caption "Guidance" and other statements regarding the company's future
 financial condition, results of operations, business operations and
 business prospects, are forward-looking statements. Words such as
 "anticipate," "estimate," "expect," "project," "intend," "plan," "predict,"
 "believe" and similar words, expressions and variations of these words and
 expressions are intended to identify forward-looking statements. All
 forward-looking statements are subject to risks and uncertainties that
 could cause actual results to differ materially from those described in the
 forward-looking statements. These factors include, but are not limited to,
 the impact of global economic fluctuations on temporary contracting
 operations; the cyclical nature of the company's executive search and
 mid-market professional staffing businesses; the company's ability to
 manage its growth; risks associated with expansion; risks and financial
 impact associated with disposition of non-strategic assets; the company's
 reliance on information systems and technology; competition; fluctuations
 in operating results; risks relating to foreign operations, including
 foreign currency fluctuations; dependence on highly skilled professionals
 and key management personnel; the impact of employees departing with
 existing executive search clients; risks maintaining professional
 reputation and brand name; restrictions imposed by blocking arrangements;
 exposure to employment-related claims, and limits on insurance coverage
 related thereto; government regulations; and restrictions on the company's
 operating flexibility due to the terms of its credit facility. Additional
 information concerning these and other factors is contained in the
 company's filings with the Securities and Exchange Commission. These
 forward-looking statements speak only as of the date of this press release.
 The company assumes no obligation, and expressly disclaims any obligation,
 to review or confirm analysts' expectations or estimates or to update any
 forward-looking statements, whether as a result of new information, future
 events or otherwise.
                          HUDSON HIGHLAND GROUP, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
               (in thousands, except share and per share amounts)
                                  (unaudited)
 
                                                        Three Months Ended
                                                             March 31,
                                                       2006           2005 (1)
 
     Revenue                                         $344,701       $352,869
 
     Direct costs                                     216,611        224,662
       Gross margin                                   128,090        128,207
 
     Operating expenses:
       Selling, general and administrative            128,194        125,913
       Depreciation and amortization                    4,508          4,857
       Business reorganization expenses                     3            529
       Merger and integration (recoveries)                  -            (43)
         Total operating expenses                     132,705        131,256
 
       Operating loss                                  (4,615)        (3,049)
 
 
     Other income (expense):
       Interest, net                                     (414)          (426)
       Other, net                                         777           (276)
 
     Loss before provision for income taxes            (4,252)        (3,751)
 
     Provision for income taxes                         1,605          1,400
 
     Net loss                                         $(5,857)       $(5,151)
 
     Basic and diluted loss per share:
 
     Net loss                                          $(0.24)        $(0.25)
 
     Weighted average shares outstanding           24,224,000     20,504,000
 
 
      (1) Note 2005 financial statements have been adjusted for the Company's
          adoption of SFAS 123R using the modified retrospective method.  (The
          comparable expenses for the three months ended March 31, 2006 and
          2005 were $1,419 and $1,014, respectively.)
 
 
 
                          HUDSON HIGHLAND GROUP, INC.
                     CONSOLIDATED CONDENSED BALANCE SHEETS
               (in thousands, except share and per share amounts)
 
                                                     March 31,    December 31,
                                                      2006           2005 (1)
                         ASSETS                    (unaudited)
     Current assets:
     Cash and cash equivalents                        $33,183        $34,108
     Accounts receivable, net                         238,057        232,081
     Prepaid and other                                 14,096         14,330
         Total current assets                         285,336        280,519
 
     Intangibles, net                                  31,397         31,100
     Property and equipment, net                       29,715         31,438
     Other assets                                       4,576          5,359
         Total assets                                $351,024       $348,416
 
 
               LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
     Accounts payable                                 $34,929        $24,718
     Accrued expenses and other current liabilities   135,552        140,036
     Credit facility and current portion of
      long-term debt                                   34,101         32,544
     Accrued business reorganization expenses           4,117          4,223
     Accrued merger and integration expenses              985          1,239
         Total current liabilities                    209,684        202,760
 
     Accrued business reorganization expenses,
      non-current                                       3,376          4,095
     Accrued merger and integration expenses,
      non-current                                       1,789          2,038
     Other non-current liabilities                      5,810          5,948
     Long-term debt, less current portion                 402            478
         Total liabilities                            221,061        215,319
 
     Commitments and contingencies
 
     Stockholders' equity:
     Preferred stock, $0.001 par value, 10,000,000
      shares authorized; none issued or outstanding         �              �
     Common stock, $0.001 par value, 100,000,000
      shares authorized; issued: 24,539,889 and
      24,340,462 shares, respectively                      24             24
     Additional paid-in capital                       420,687        416,448
     Accumulated deficit                             (323,813)      (317,956)
     Accumulated other comprehensive income -
      translation adjustments                          33,295         34,811
     Treasury stock, 15,798 shares                       (230)          (230)
         Total stockholders' equity                   129,963        133,097
                                                     $351,024       $348,416
 
 
      (1) Note 2005 financial statements have been adjusted for the Company's
          adoption of SFAS 123R using the modified retrospective method.
 
 
 
                          HUDSON HIGHLAND GROUP, INC.
                                SEGMENT ANALYSIS
                                 (in thousands)
                                  (unaudited)
 
     For the Three Months                   Hudson
     Ended               Hudson    Hudson    Asia   Highland
     March 31, 2006     Americas   Europe   Pacific Partners  Corporate  Total
 
     Revenue            $112,248 $116,141  $100,538  $15,774      $ - $344,701
 
     Gross margin        $25,322  $50,965   $36,861  $14,942      $ - $128,090
 
     Adjusted EBITDA (1) $(3,377)  $5,550  $  4,732   $1,288  $(8,297)   $(104)
 
     Business reorganization
      expenses                 -        -         -        3        -        3
     Merger and integration
      expenses                 -        -         -        -        -        -
 
     EBITDA (1)           (3,377)   5,550     4,732    1,285   (8,297)    (107)
 
     Depreciation and
      amortization         1,506    1,739       775      323      165    4,508
 
     Operating income
      (loss)             $(4,883)  $3,811    $3,957      $962 $(8,462) $(4,615)
 
 
     For the Three Months                   Hudson
     Ended               Hudson    Hudson    Asia   Highland
     March 31, 2005 (2) Americas   Europe   Pacific Partners  Corporate  Total
 
     Revenue            $112,105 $122,399  $103,501  $14,864      $ - $352,869
 
     Gross margin        $27,574  $50,451   $36,116  $14,066      $ - $128,207
 
     Adjusted EBITDA (1)  $2,271   $3,101    $6,696     $376 $(10,150)  $2,294
 
     Business reorganization
      expenses (recoveries)  608      (79)        -        -        -      529
     Merger and integration
      (recoveries)           (43)       -         -        -        -      (43)
 
     EBITDA (1)            1,706    3,180     6,696      376  (10,150)   1,808
 
     Depreciation and
      amortization           976      978     2,417      354      132    4,857
 
     Operating income
      (loss)                $730   $2,202    $4,279      $22 $(10,282) $(3,049)
 
 
      (1) Non-GAAP earnings before interest, income taxes, special charges,
          other non-operating expense, and depreciation and amortization
          ("Adjusted EBITDA") and non-GAAP earnings before interest, income
          taxes, other non-operating expense, and depreciation and amortization
          ("EBITDA") are presented to provide additional information about the
          company's operations on a basis consistent with the measures which
          the company uses to manage its operations and evaluate its
          performance.  Management also uses these measurements to evaluate
          capital needs and working capital requirements. Adjusted EBITDA and
          EBITDA should not be considered in isolation or as a substitute for
          operating income, cash flows from operating activities, and other
          income or cash flow statement data prepared in accordance with
          generally accepted accounting principles or as a measure of the
          company's profitability or liquidity.  Furthermore, adjusted EBITDA
          and EBITDA as presented above may not be comparable with similarly
          titled measures reported by other companies.
 
      (2) Note 2005 financial statements have been adjusted for the Company's
          adoption of SFAS 123R using the modified retrospective method.
 
 

SOURCE Hudson Highland Group, Inc.

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